Reining in Excessive FAA Salary Costs

About the Author

At the behest of the
Clinton Administration in 1996, Congress enacted legislation that
gave the gov­ernment's air traffic controllers the right to
bargain with the federal government over pay, benefits, and work
rules-a privilege unavailable to the vast major­ity of other
federal workers, then or now.[1] With this new bargaining
power, the air traffic controllers extracted in 1998 a sweetheart
deal of extraordinary generosity from a compliant White
House.

According to the
Federal Aviation Administration (FAA), base pay for the
14,500 controllers soared 75 percent over the next seven years,
rising from $64,877 in 1998 to $113,615 in 2005. Including
pre­mium pay for location upgrades and other salary add-ons,
average controller cash compensation reached $128,000 in
2005. When benefits are included, total compensation averaged
$166,000 in 2005. For a select group of 1,300 controllers,
seniority, premium pay, and overtime boosted their total pay and
benefit package above $200,000 in 2005. Despite this gener­ous
compensation, the air traffic controllers union is seeking a new
contract with higher pay that the FAA estimates would cost
taxpayers and the beleaguered aviation industry an extra $2 billion
over the con­tract's five-year lifetime.[2]

Negotiating a New
Contract

In defense of their
high pay and their demand for more, the National Air Traffic
Controllers Associa­tion (NATCA), the air traffic controllers
union, contends that its members' generous compensa­tion is
justified by their stressful work and the crit­ical importance
of ensuring the safety of millions of airline passengers. The union
also contends that the indices to which their pay is contractually
linked, not the 1998 contract, caused the pay esca­lation.[3]

Source:

* The Department of Labor's estimate of the base pay for air
traffic controllers is smaller than the $128,000 median calculated
by the FAA because it covers an earlier year, includes only base
pay, and includes controllers who do not work for the FAA, such as
those manning the 187 Level 1 towers that have been contracted out
to private operators.

While compensation
should be commensurate with the required skills and the effort
expected of the workforce, a review of compensation for other
professions requiring similar skills and on which the public safety
depends found that controller pay is unusually generous, as shown
in Table 1.

Despite generous
salaries and early retirement benefits, the controllers want more
and have pro­posed a new five-year contract that includes an 18
percent pay increase, which would increase cash earnings from
$128,000 to $151,000 and total compensation to over $200,000 by the
last year in the contract. The federal government's counteroffer
would allow cash pay to rise from an average of $128,000 in 2005 to
$140,000 over the five-year contract, and total compensation would
rise from $166,000 to $187,000.[4] The government also
pro­poses to create a new pay tier for new hires to repair the
financial damage done by the 1998 contract.

In response to the
proposed new pay tier, the controllers argue that expected
controller retire­ments in the near term (10 percent over the
next year and 75 percent over the next decade) will save $543
million over the next five years as the more highly paid senior
controllers retire and are replaced by lower-paid new entrants
under the existing scale.[5] The FAA counters that the old
con­tract, compared with the new pay tier, would pro­vide
new entrants with substantial pay increases during their early
years that would offset any initial savings.

Since the existing
contract expired in September 2005 and efforts to negotiate a new
one have reached an impasse, the FAA invited the Federal Mediation
and Conciliation Service (FMCS) to join the discussions to help
reach a deal. Even with the FMCS, the impasse persisted, and
negotiations broke down in early April 2006. The delay in reaching
a new agreement is caused in part by the flaws and peculiar
provisions in the 1998 agree­ment that work both for and
against the controllers union, depending upon the rate of progress
in the negotiations. To the controllers' considerable bene­fit,
they continue to receive pay increases after expiration of the
existing contract in September 2005. Under terms of that contract,
between the contract's expiration and an agreement on a new one,
controllers still receive annual pay increases "at a rate that is
the greater of the government-wide increase plus 0.8 percent or the
agency-wide increase." In other words, despite the absence of a new
contract, controllers will continue to receive larger pay increases
than their counterparts else­where in the civil service
receive. As a conse­quence, the union's incentive to negotiate
a compromise agreement with the government is greatly
diminished.

However, the 1998
contract was not totally one-sided. It provided the government with
some rem­edies in the event that the union became
intransi­gent and abused its privileges as granted under the
contract. Specifically, the 1998 contract included a safety valve
that allows the FAA to impose a con­tract on the controllers,
subject to congressional action, if good-faith negotiations came to
a com­plete impasse.

That impasse arrived on
April 5, 2006. As a result, the FAA's final offer will become the
effective labor contract unless Congress intervenes in the union's
favor. Yet with Congress under growing pressure to control spending
better and hold the line on taxes, Members may not be inclined to
aid a privileged class of government workers whose base salaries
are already more than four times the average annual salary of their
constituents employed in the private sector.

To thwart this outcome,
several Members of Congress have introduced legislation to overturn
the congressional role provided by the federal laws governing
FAA-controller contract negotiations. Senator Barack Obama (D-IL)
introduced S. 2201 in the Senate, and Representative Sue Kelly
(R-NY) has introduced its companion bill (H. R. 4755) in the House
of Representatives to limit the govern­ment's ability to curb
the excessive growth in con­troller wages. If enacted, their
proposal would eliminate the FAA's option of imposing a contract on
the controllers when negotiations reach an impasse (a right that
the federal government effec­tively has over the millions of
other well-paid civil servants); terminate congressional
responsibility over that portion of the FAA budgetary process; and
transfer the final decision on the contract (and the federal
budget) to an independent arbitrator.

Regardless of the
legislative outcome, the Department of Transportation (DOT) and FAA
leadership should be commended for holding the line against the
union's excessive demands and attempts by the controllers'
congressional support­ers to undermine efforts to restrain
spending. The government's success to date has also come at the
expense of the union's highly paid lobbyists, mem­bers of a
thriving industry in Washington, D.C., that is increasingly driving
the federal budget pro­cess.[6] Notably, the union's
professional lobbyists have failed to garner many congressional
cospon­sors for the Obama-Kelly legislation beyond the
predictable big spenders and union supporters.

Notwithstanding the
intense resistance from the union and its congressional supporters,
the FAA's proposal is comparatively timid considering the many
financial and operational problems facing this government monopoly,
which is struggling to oper­ate in a fast-changing world. While
other nations have improved their aviation services and reduced air
traffic control operating costs through the priva­tization
and/or commercialization of all or some of their national aviation
systems, America's aviation control system continues to operate in
the warm and generous embrace of a government monopoly.

Recent FAA
Privatization Successes

A DOT Inspector General
review found that con­tracting out 187 Level 1 towers to
private controller services saved taxpayers $250,000 per tower per
year prior to the 1998 wage contract. Given the subsequent
escalation in controller salaries, the Inspector General estimates
that a contracting pro­gram applied to the remaining 71
FAA-managed Level 1 towers would save $881,000 per tower per year.
Congress should encourage the FAA to pursue this opportunity to
save an estimated $63 million per year in taxpayer money.[7]

Despite bipartisan
pro-union resistance in the House and Senate, the FAA successfully
contracted out the 2,500 employee positions in flight service
centers to a private company for a savings of $2.2 billion over the
next 10 years. It achieves these sav­ings by implementing new
technologies and restructuring operations. These new technologies
will allow the number of flight service centers to shrink from 58
to 20 and the number of workers to fall from 2,500 to 1,500 while
providing the same or better services.

What the Administration
Should Do

Instead of pretending
that such a monopolistic structure possesses any value in the
modern world, the Administration should build on the FAA's
suc­cessful resistance to the union's excessive wage demands
and related privatization successes by pursuing a comprehensive
restructuring strategy that will move the FAA into the 21st
century. To achieve this end, the FAA should:

Impose the
Administration's best offer con­tractand force Congress to
side with either the taxpayer and the traveling public or the
highly paid union members.

Continue to pursue
competitive contracting and privatization
opportunities, such as those that
already have reduced costs and improved safety in the
system.

Develop legislation to
privatize the entire air traffic control system. Over the past decade,
many other countries have moved to privatize or commercialize their
entire air traffic control systems. Indeed, notwithstanding
President Clinton's ultimate cave-in to the controllers union in
1998, his Administration conducted a detailed and positive review
of such a privatiza­tion,[8] and Vice President Gore's
Reinventing Government effort reviewed this outcome favorably. As
much of the world continues to flee from the destructive
consequences of socialism, the U.S. could at least join the
auxil­iary movement by committing to a formal study of the
costs and benefits.

Conclusion

The Administration has
had some success in enacting reforms that undermine the forces of
priv­ilege and entrenchment within the federal
bureau­cracy. One of those notable successes was the FAA's
enhancement of the quality of the flight service centers at a
considerable savings while improving service and
technology.

Resisting the
controllers' demands for excessive pay increases presents another
challenge and an even greater opportunity. Once contract
negotia­tions are successfully settled, the FAA should set a
goal of contracting out the remaining government-operated Level 1
towers to achieve the estimated savings of $63 million. To this
end, the Republican Study Committee's recent proposal to privatize
FAA activities as part of its FY 2007 budget proposal[9] is
timely and should receive the support of other Members of
Congress.

Ronald D. Utt,
Ph.D., is Herbert and Joyce Mor­gan Senior
Research Fellow in the Thomas A. Roe Insti­tute for Economic
Policy Studies at The Heritage Foundation.